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VTB Group CEO Andrey Kostin Speaks in Bloomberg Europe TV Interview

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27.11.2015

CHARLIE ROSE: Andrey Kostin is here, he is President and Chairman of VTB, Russia’s second largest bank. Russia’s been battered by economic sanctions, imposed by the West in response to Russia’s annexation of Crimea in March of 2014. Persistently low oil prices and other geopolitical risk also pose severe threats. On Thursday President Putin will meet with President of France Francois Hollande in Moscow to discuss opportunities for a united front against ISIS. ISIS took credit for downing a Russian airliner over Egypt’s Sinai Peninsula last month, killing all 224 passengers. I am pleased to have Andrey Kostin back at this table, welcome.

ANDREY KOSTIN: Hello.

CHARLIE ROSE: Let’s begin with something you know a lot about, which is the Russian economy. Assess where it is today.

ANDREY KOSTIN: Well, definitely not collapsing. The Russian economy is in a negative growth this year, but starting from next year we expect some economic growth, and I think the economy is stabilizing. After the first shockwave of lower oil prices and sanctions and bad commodity prices for other Russian commodities, and slower growth in China — all these factors affected the Russian economy. I think, now we understand that the economy will grow, it has somehow adjusted to new conditions and is surviving.

CHARLIE ROSE: But the decline of oil prices and the expected decline in gas prices as well, is the most severe threat to the Russian economy?

ANDREY KOSTIN: It is, but the next budget is based on the assumption that oil prices will be at around $50 per bbl, and I think it is a reasonable approach, and I think at this level of oil prices we rather can cope with the budget spending and I think, we may have maybe slight economic growth.

CHARLIE ROSE: And what’s the most significant contributor to the Russian economy other than energy?

ANDREY KOSTIN: Well, Russia, of course, has other export commodities like metals, coal, electricity and other commodities, and also agriculture is showing quite healthy growth this year because of the counter-sanctions Russia introduced.

CHARLIE ROSE: Just take your bank for example, how did sanctions hurt it?

ANDREY KOSTIN: Well, we don’t have a liquidity squeeze as we had in 2008, for example, but we are limited in international borrowings, but maybe more important, we are restricted from entry into the international stock market, we are not selling more stocks, we can’t privatize our bank any further, and that’s the main inconvenience.

CHARLIE ROSE: You can’t privatize it anymore?

ANDREY KOSTIN: No, because foreign investors are forbidden from buying, but we have received substantial support from the government for our capital base and liquidity from Russian Central Bank. We aren’t experiencing big problems nowadays.

CHARLIE ROSE: You have sufficient liquidity?

ANDREY KOSTIN: We have sufficient liquidity, it’s not an ideal model of development for us, sanctions, but we’re used to it now. For us it’s now what we call «the new normality».

CHARLIE ROSE: Yes, but some say that clearly eliminating the sanctions is one of the primary objectives for the President?

ANDREY KOSTIN: Well, he never raised this question. I mean, his position is «It was not us who introduced these sanctions, and we’re not asking to remove them». So I think, we expect that, we completely disagree with the sanctions, of course, we think it’s a wrong use of international economic, financial architecture or infrastructure, and we think that sanctions didn’t reach their goals. I mean, it’s impossible to force Russia to change the course of its foreign policy.

CHARLIE ROSE: But you’re the second largest bank in Russia and you said you were hurt? And you had to depend on the state and the Central Bank to provide liquidity?

ANDREY KOSTIN: Unfortunately, geopolitics intervene in business nowadays, but that’s not the Russian approach. We don’t think it’s a correct approach, and most of the business and financial community in the West thinks the same, these should be separate, geopolitics and business should be separate and whatever political differences there are should be resolved by the governments, as a separate issue, rather than using financial, trade and other instruments to exert pressure on other countries. It’s never worked.

CHARLIE ROSE: Are there significant American investments in Russia?

ANDREY KOSTIN: No, not really.

CHARLIE ROSE: I don’t mean by the government, I mean by private enterprise in Russia?

ANDREY KOSTIN: The American investor shows certain interest now in certain areas, but generally of course, the relationships between our countries are quite limited, though interesting, in spite of the sanctions, the share of Russian-American trade in Russian foreign trade is growing, maybe mainly because there was a great decrease in our trade with Europe. But probably that’s a weak point…

CHARLIE ROSE: So it’s growing with China or with who?

ANDREY KOSTIN: It’s growing with China, yes, but of course, in dollar terms it fell probably, I mean, general trade, because of the decrease in commodity prices. But in China yes, we have a big scope of relations…

CHARLIE ROSE: Their demand for imports is…

ANDREY KOSTIN: It’s quite big, and you know, we recently signed quite a big contract for oil and gas with China, so we expect growing volume of trade with China in the next decade or so.

CHARLIE ROSE: What’s your assessment of the Chinese economy today?

ANDREY KOSTIN: On the one hand, when we are talking about the slowdown of the Chinese economy, that’s still 5–6%, that’s quite a high growth, but I think that China still has a lot of problems relating to its unreformed economy, they still lack the domestic consumption…

CHARLIE ROSE: They are trying to change that?

ANDREY KOSTIN: They are trying to change that, but I think they still have quite a number of important problems they should overcome.

CHARLIE ROSE: Like what?

ANDREY KOSTIN: Like increasing domestic demand by actually, having, for example, their financial sector, banking sector is very much, totally dominated by state banks, which, unlike Russia’s actually, act in many ways on the political instructions, and I think that they sometimes took too much risk, and that led to some big problems.

CHARLIE ROSE: And how much domination of the Russian banks is there by the Kremlin?

ANDREY KOSTIN: (laughs) The Kremlin is not dominating. But well, more than 50% of the Russian banking sector is the banks with government majority stakes, like Sberbank and VTB.

CHARLIE ROSE: More than 50% of the banks in Russia are owned, it’s 50% by the government.

ANDREY KOSTIN: By the government, yes.

CHARLIE ROSE: Is that healthy?

ANDREY KOSTIN: Well, we were privatizing the banks, in my bank 40% belongs to the private investors, in the largest bank, Sberbank, that’s nearly 50%, close to 50%, so if situation allows, I think there’ll be further privatization of the Russian banking sector.

CHARLIE ROSE: I asked President Putin when I interviewed him in Moscow…

ANDREY KOSTIN: It was a very good interview.

CHARLIE ROSE: Thank you. I asked him about what he admired most about America, you know he said «the innovation and the creativity».

ANDREY KOSTIN: It’s kind of true, it’s true, I mean…

CHARLIE ROSE: And I think Americans were surprised that he said that.

ANDREY KOSTIN: Why?

CHARLIE ROSE: But he did say it, I mean that was clearly, you know, he took, you know, he was fully aware of Silicon Valley and contribution of technology to the American productivity and to the American economy. There’s no question there, but I’m interested in understanding what’s your sense of him? You heard Gary Kasparov who’s a sworn enemy of Vladimir Putin.

ANDREY KOSTIN: A very emotional enemy.

CHARLIE ROSE: Yes, but Nemtsov was his best friend, or was a close friend.

ANDREY KOSTIN: I knew him very well.

CHARLIE ROSE: You knew Nemtsov?

ANDREY KOSTIN: I knew Nemtsov very well for many years.

CHARLIE ROSE: I ask you the same question I asked him, what happened to Nemtsov, what do you think?

ANDREY KOSTIN: It’s a great tragedy, I mean, it’s very bad for Russian politics and I think it’s bad for Putin. By the way, Mr. Nemtsov was a very harmless person actually.

CHARLIE ROSE: Harmless?

ANDREY KOSTIN: Harmless. I think he was not a person with aggressive intentions and he was not a person, who, frankly speaking, was viewed as any threat to Mr. Putin’s power. But of course, I’ve heard Mr. Kasparov, of course, saying that Russia has a brutal regime, then coming back to Russia and calling for an uprising, I think it’s a little bit funny, because a brutal regime would probably act differently towards Mr. Kasparov. But he is, of course, an opposition person, and one can expect him to say such things. I think Mr. Putin is a person who really loves Russia, he is really a patriot of Russia, and he really wants Russia to be strong from the economic point of view, once one or two years ago Mr. Putin was named as the most powerful person in the world.

CHARLIE ROSE: This year.

ANDREY KOSTIN: This year, yes, but there was a previous occasion as well, and when he was asked about this, he said «Look, today the strength and power depend on economic strength». Russia is not strong enough economically to be the most powerful, so I think he is very realistic in his understanding the role of Russia, but he definitely wants Russia to be powerful and influential and respected. I think that’s very important.

CHARLIE ROSE: You would hope that every political leader would want that for his country, to be powerful, to be respected, to be creating economic successes for its people.

ANDREY KOSTIN: But you know, Russia, Russia society probably felt a little bit differently, because after the collapse of the Soviet Union, which was a big powerful country, at least how people saw it. They said «OK, we’re living in an authoritarian society, in the Soviet Union, probably we’re quite poor, but we’re a great power." Since the collapse of the Soviet Union, Russians never thought about it like this, you know, and to a certain extent they were humiliated, maybe, by being a less important nation. So Putin to a great extent reinstated this, that people started to think about Russia as about ourselves, to be proud of this country. It’s for the first time, for many years that we are actually, people are really proud of their country.

CHARLIE ROSE: And how did he achieve that?

ANDREY KOSTIN: Well, I think he is focusing on certain very important issues for Russia and I think he reinstated Russia on the political arena as a country with independent foreign policy. I think that’s important and he showed strong leadership.

CHARLIE ROSE: Do most Russians, you know, in the West the view is that the takeover of Crimea, even though President Putin says there was a referendum, most people in the West view that as an illegal takeover of Crimea.

ANDREY KOSTIN: I am not a legal expert, but I can tell you, I’ve been spending my summer holidays in Crimea since 2002 every year and I can tell you what people think in the Crimea. People really support it, if you come to Crimea and ask people in the street, I am sure that 90% of them will tell you that they did want it, that they never wanted to be a part of Ukraine, actually, after the collapse of the Soviet Union they were protesting, and actually what Ukraine did, they actually provided a lot of autonomy to Crimea. Actually the Crimean leader was even called President, it was an autonomous republic. Then they removed all those rights later. But frankly speaking, Crimea, with 60% of its population being Russian, they never wanted to be a part of Ukraine and they voted absolutely voluntarily to become a part of Russia.

CHARLIE ROSE: Do you think that part of what drives President Putin is wanting and demanding a kind of respect for Russia, that he clearly believes that after the collapse of the Soviet Union and all the troubles that Russia went through, you know, that the world had lost respect, and he is determined to make sure that the world respects Russia, and that’s part of what his political activities are about?

ANDREY KOSTIN: Yes, but also I think he thinks that there should be some rules of the game in international politics, because before the collapse, when there was Soviet Union, there were standoffs between the Soviet Bloc and the Western Bloc, and there were some rules of the game. For example, major decisions had to be taken by the UN Security Council, and since the collapse of the Soviet Union, I think, we feel in Russia that NATO and the United States play their own game without asking anybody, without asking the United Nations, without asking Russia, China or any other countries of the world. So I think, what we see, for example, in Syria, if the United States and NATO can bomb Syria, than Russia can do the same, unless we draft some new rules where we say «no, no country can do it» unless there is a consensus or agreement or some framework for taking consolidated decisions on such issues.

CHARLIE ROSE: What do you think Putin thinks about relationships with the United States in terms of cooperation in Syria, in terms of being able to cooperate on a lot of big deals?

ANDREY KOSTIN: Well, I think the United States are very important for Russia, and Russia always wanted to have good relationships with the United States, and I think that he was quite sincere saying that he respects the United States and the people, and I think we are doomed to cooperation, we have to cooperate, because Russia may not be very strong economically, but it’s a big nuclear power, and if we want peace and stability in the world, we have to talk to each other, otherwise the world will not be a very safe place to live in.

CHARLIE ROSE: How close are you to Vladimir Putin?

ANDREY KOSTIN: Well, I am not among his friends from St. Petersburg years.

CHARLIE ROSE: You didn’t grow up with him in St. Petersburg.

ANDREY KOSTIN: No, I’m a Muscovite, but I’ve been working, I know him for maybe now 17 years, probably, and you know, in Russia, when you’re a chairman of a largest bank, you visit the President and see him from time to time, so I mean, he knows me very well, I know him very well at least. But my relationship is limited to what I’m doing, we don’t discuss much broader issues.

CHARLIE ROSE: Mainly it’s about the economy, the bank.

ANDREY KOSTIN: Economy, banking, yes.

CHARLIE ROSE: And he is on record and said, that is, other leaders have said, you know, that a country can’t be a strong international player unless it has a strong economy.

ANDREY KOSTIN: Yes, that’s right. That’s the largest problem for Russia, probably, because we failed in many areas, converting the economy into what Mr. Putin said is innovative economy, but we have opportunities. We have brains, we have people, we have knowledge.

CHARLIE ROSE: When you look back, I’ll close on this, when you look back at the transition with the fall of the Soviet Union, and there was a real opportunity missed to help Russia grow, was there not?

ANDREY KOSTIN: To help, you mean, from outside?

CHARLIE ROSE: Yes, in other words, with the rest of the world trying to help Russia emerge from the collapse of the Soviet empire. Some argue that was a real missed opportunity.

ANDREY KOSTIN: Well, we didn’t expect any Marshall plan for Russia, of course, but my personal opinion is that at a certain point the West started to introduce too much politics in our economic relationships. It happened with the EU, maybe to a lesser extent with America, unfortunately, with America we don’t have too much of an economic relationship for a number of reasons, though there are some companies working very actively, I mean Citibank or Coca-Cola, or Pepsi-Cola, they have quite big operations in Russia…

CHARLIE ROSE: Pepsi-Cola got a head-start.

ANDREY KOSTIN: Yes, but I mean, I think for Pepsi it’s the second largest market in the world after America, if I am not mistaken. I think, first of all we should blame ourselves for missing opportunities, not the outside world, of course, but I think sometimes we misunderstood each other, and that probably was a problem.

CHARLIE ROSE: Is your bank the largest bank in Russia?

ANDREY KOSTIN: Second largest.

CHARLIE ROSE: That’s what I thought, it’s second, but I thought you’d said first, although maybe I misunderstood. What’s the largest bank in Russia?

ANDREY KOSTIN: The largest is Sberbank. It’s the former savings bank of Russia.

CHARLIE ROSE: What brings you to the United States?

ANDREY KOSTIN: Well, I was meeting with chairmen of some American banks this morning and had very fruitful discussions on joint cooperation and on general things like economy in Russia… and maintaining.

CHARLIE ROSE: And some of the things we’ve been talking about.

ANDREY KOSTIN: Yes, I am maintaining permanent contacts and we have extremely good relationships with financial institutions in the United States, we still view them as very important partners and I believe that they will come when we have more business to do together.